Blog

Competition and interconnection - how and where should we spend green energy subsidies?

12 Jun 2014, 12:15

Simon Evans

CC2.0 Global Marine Systems

The government's new system to allocate green energy subsidies
is called contracts for difference (CfDs).

The government plans to use auctions to annually
divide up a fixed pot of money to support established forms of
renewable power. Different technologies will compete against each
other for support. Other less mature technologies may not have to
compete for money initially, on the basis that they need the
support more.

Best value for consumers

Consumer group Which? supports the scheme, but wants
the money - which comes from a levy on household energy bills - to
deliver the best value possible. Introducing competition more
quickly for less-established technologies would help ensure this
happens, it
argues in a letter to the government seen by Carbon
Brief.

It suggests offshore windfarms, for example, are being
unfairly shielded from competition. Offshore developers should be
forced to compete against each other for subsidies, Which? says, in
theory driving costs down. This could happen even if offshore wind
is insulated from competing against cheaper onshore wind, or power
stations converting to burn wood instead of coal.

Massive power cables under the
sea

Centre-right thinktank Policy Exchange also has views on how the
scheme could be improved. It
suggests allowing foreign green energy schemes to compete
against those in the UK for government cash. Money could go to
windfarms in Ireland, for instance, or hydropower schemes in
Norway. The idea would be to deliver low-carbon power at the least
cost.

Policy Exchange thinks that allowing foreign
low-carbon energy projects to bid for CfDs would also indirectly
give developers an incentive to build more interconnectors - large
undersea power cables that allow trade in electricity between the
UK and other countries.

It points out that France, Norway and Iceland all have much
cheaper and much greener electricity supplies than the UK. French
power is 36 per cent cheaper than the UK's and is 85 per cent lower
carbon because most of it comes from nuclear or hydro. Norway gets
its electricity almost exclusively from hydropower, making it 83
per cent lower carbon and 25 per cent cheaper than UK supplies.

Cheaper, cleaner power from
overseas?

Policy Exchange suggests households in the UK could
save up to £1 billion per year if there was more interconnector
capacity allowing greater access to this cheaper, cleaner
energy.

There are already four interconnectors between
the UK, France, Netherlands and Ireland (orange lines below). These
have a combined 4 gigawatt capacity and supplied 3.2 per cent of UK
electricity in 2012.

The UK's National Grid has approved the
building of a further 5.8 gigawatts of planned interconnector
capacity (peach lines). More speculative proposals include links to
the Netherlands and Iceland (blue lines). The grey lines show
overseas renewable energy projects that could deliver power to the
UK through interconnectors.

Subsidising foreign power plants?

Handing money from energy bill levies to overseas
renewable power firms could prove politically challenging. But
there is precedent. Foreign firms are already heavily involved in
the UK energy sector - EDF is owned by the French government, and
both E.On and npower are German-owned.

If the plans work out, then combined with greater
interconnection, making it easier for technologies and suppliers to
compete with each other for subsidies could mean that your future
kettle will be boiled by Norwegian hydropower or German
biomass.